Free Markets, Free People

Economy

Another "green jobs" success story

And yes, I’m being snarky. The only folks that got anything green was the company that folded. The taxpayers, of course and as usual, got the shaft:

A Salinas car manufacturing company that was expected to build environmentally friendly electric cars and create new jobs folded before almost any vehicles could run off the assembly line.

The city of Salinas had invested more than half a million dollars in Green Vehicles, an electric car start-up company.

The “money trail”:

The start-up company set up shop in Salinas in the summer of 2009, after the city gave Ryan a $300,000 community development grant.

When the company still ran into financial trouble last year, the city of Salinas handed Ryan an additional $240,000. Green Vehicles also received $187,000 from the California Energy Commission.

So here we have government taking taxpayer money and picking "winners". Wonder how many police and fireman all that money would have paid? Wonder who the Salinas government is going to claim it has to lay off first when budget crunch time hits? Because we all know state and local governments in California are doing fine financially, don’t we?

Yet this sort of fiscal nonsense is rampant in government today.  They seem to think it is their job, at all levels, to intrude in areas they have no business intruding and pick winners according to an agenda with little understanding, apparently, as to what it actually takes to succeed in doing so.  You know, like there has to be a market, the firm has to be adequately financed (for more than a couple of months) and it has to have a long-term and viable business plan that actually passes a sanity check. 

Instead it seems, at least based on this story, that “just words” got the Salinas government in a real “hope and change” attitude:

Last year, Salinas city officials said they were excited about Green Vehicles moving from San Jose to Salinas because they wanted to turn Salinas into a hub for alternative energy production.

City leaders wooed Green Vehicles to jump-start the sputtering local company and turn Salinas into an "electric valley." Donohue and Weir both voiced their high hopes for Green Vehicles.

The start-up company promised city leaders that it would create 70 new jobs and pay $700,000 in taxes a year to Salinas.

Green Vehicles was supposed to be up and running by March 2010 inside their 80,000-square-foot space at Firestone Business Park off of Abbot Street.

Ryan had lofty goals, listing his company’s mission as: "To make the best clean commuter vehicles in the world; To manufacture with a radical sense of responsibility; To engage in deep transparency as an inspiration for new ways of doing business."

Green Vehicles designed two vehicles, the TRIAC 2.0 and the MOOSE, which it planned to manufacture.

On July 12, Ryan wrote a blog post announcing that his company was closing.

"The truth is that not realizing the vision for this company is a huge disappointment," Ryan wrote.

So they invited a company that was obviously already underfunded with promises of money and a great mission statement? What could possibly go wrong with that?

Salinas Economic Development Director Jeff Weir said Green Vehicles flopped because of a lack of investors.

Uh, so as Economic Development Director for the city, Mr. Weir didn’t know that before they made the big offer and threw all the taxpayer money at the company?  No indication of it when the company was in San Jose?

Salinas Mayor Dennis Donohue said he was "surprised and disappointed" by the news. City officials were equally irked that Ryan notified them through an email that his company had crashed and burned.

Oh, well yeah, that’s the important part to be “irked” about – not the half mil of taxpayer money they threw down a rat-hole in an iffy company that officials obviously didn’t check out.

This is why governments should be held to doing only those functions they’re best suited to do.  If I were a Salinas resident, I’d be petitioning for recall elections for the idiots who threw taxpayer money away in a time of fiscal difficulty.  When the mayor tells the people of that city that he’s going to have to lay off cops and fire fighters first, my reaction would be, “oh, no – we think the mayor and the Econ Dev Director should be laid off first since they just cost taxpayers a half mil in a stupidity tax”.

Yes, I know, radical idea – accountability.

Oh … and by the way, who names a car the “Moose”?

~McQ

Twitter: @McQandO

Taxes won’t help

A commenter to my previous post writes: “Tax increases on the wealthiest would keep rates below Reagan era rates, and add some revenue.”

No, they won’t.  Not even close. Here’s why:

Tax Revenues as a Percentage of GDP by Year, 1933-2010

Now, this chart counts all tax revenues. Income taxes, corporate taxes, excises, tariffs, etc.  All of them. It includes the low income taxes of the 1930s, the 90% top tax brackets of the 40s and 50s, the Kennedy and Reagan rate cuts of the 60s and 80s…it’s all there.

And what do we notice about this model? Well, a couple of things. First, the highest tax receipts as a percentage of GDP was 20.9%.  That was in 1944. In 1945, the percentage was just north of 20%.  I think I have a pretty solid–and obvious–explanation of why tax receipts jumped so high in those two years. Sadly, the Nazis are gone and the Japanese seem rather less interested in the Greater Southeast Asia Co-Prosperity Sphere project than they did back then, so a global conventional war seems out of the picture at the moment. Darn our luck!

But the other thing we notice when we look at this chart is that despite top marginal tax rates varying between 28% and 90% since 1945, tax revenues as a percentage of GDP seem to be locked in at about 18%.  There is, in fact, only one explanation for the variations–minor as they are–in the revenue percentage since 1945, and that is economic expansion.  Irrespective of the statutory tax rates, the single, overriding factor in increases or decreases in the revenue percentage has been economic growth.  The percentage rises when the economy expands, and dips when it contracts.

As a practical matter, this chart shows us a very obvious, but little-understood phenomenon, namely, that 18% or thereabouts is the rate at which the electorate consents to be taxed. Think about that for a minute. Dwight D. Eisenhower presided over a system of steeply graduated tax rates with a top marginal tax rate of 90%.  He got 18% of GDP in revenue.  Ronald Reagan slashed tax rates, simplified the structure into three brackets, indexed for inflation, with a top marginal tax rate of 28%…and got 18% of GDP in revenue.

In the past couple of weeks, three different progrssive policy think tanks have released deficit reduction plans, all of which contained substantial tax increases, and which projected revenues as a percentage of GDP rising to over 23%.

Not. Gonna. Happen.

We know it won’t happen, because the American people have told us repeatedly, over the past 60 years, exactly how much revenue they’re willing to pay in taxes. You can jack around with tax rates all you want and you’ll get 18%.  Unless you grow the economy.  When the jobs are plentiful and the money is rolling in, the American people get a bit more generous. They’ll give you 19%.  Maybe, if things are really going swell, 20%.  But if the economy isn’t rolling hard, you’re gonna get your 18%–or less. Assuming you can lift 23% of GDP in tax revenues is just a fantasy.

Because here’s the thing: You can’t force people to make money. If they can make the same take-home pay working 35 hours per week under the new tax regime as they made in 40 hours per week under the old one, they’ll just work 35 hours per week. The more you penalize income, the less desirable additional income becomes.  It’s almost as if people respond to incentives!

Bonus question 1: If the government collects about 18% in GDP irrespective of the statutory tax rates, what is the electorate telling you the desired statutory tax rate is?

Bonus question 2: If the main factor in increasing tax revenues is economic growth, would economic growth likely be greater or smaller under a regime of lower taxes?

Discuss among yourselves.

~

Dale Franks
Twitter: @DaleFranks

How screwed are we?

I have to admit, I sometimes get tired of being the voice of doom. Sadly, our political class–Republicans and Democrats alike–seems determined to follow the worst policy options available. So, doom slouches closer. The proximate doom they’re fiddling with this time is the approaching debt limit. Now, I yield to no man in my hatred for ever-increasing government spending, but this debt-limit battle is pointless.  We will increase the debt limit. We have no choice.

Here’s the current situation:

OMB estimates federal revenues for 2011 will hit $2.17 trillion. Granny, our servicemen, and other such untouchables — by which I take him to mean Social Security, Medicare, national defense, and debt-service payments — will add up to $2.21 trillion, meaning that even if we cut the rest of the federal budget to $0.00 — no Medicaid, no food stamps, no Air Force One — revenues still would not cover these untouchables, according to OMB estimates…

Our deficit is about 40 percent of spending this year; continued recovery, if the estimates hold, will do some of the work for the 2013 regime, but even under current forecasts that are arguably too rosy, we’ll still be running a 26 percent deficit in 2013.

Even if we eliminate every penny of spending this year except for Social Security, Medicare, and Defense, we still can’t cover this year’s spending.  And next year’s spending projects an economic recovery will save us, and reduce the deficit to 26% of spending. Absent such a recovery, next year we’ll be back to another 40% deficit.

And the politicians of both parties are nowhere near to making the appropriate cuts in the budget in years farther out than that.  The biggest deficit reduction package currently on the table is for $4 trillion over the next 10 years. Which sounds impressive, until you remember that the actual projected budget deficit over the next 10 years is $13 trillion. So, we’re still $9 trillion short of closing the budget deficit for the next 10 years.

But, wait! It gets better!  This $13 trillion figure assumes that interest rates will remain stable where the currently are. If interest rates for treasuries go up by 1%, that wil add 1.3 trillion to the deficit over the same period.  As the moment, the Office of Management and the Budget (OMB) projections are for a stable average interest rate of 2.5%. Of course, the current 20-year average is closer to 5.5%, so a return even to normal interest rates will add up to $3.9 trillion to the deficit.

But the magic doesn’t stop yet! OMB forecasts growth rates of between 4%-4.5% from 2014 to 2014. The average trend rate of growth is between 2.5%-3% however. So, if we don’t get the strong growth the OMB is predicting over the next three years, and the following years, we’ll need to add another $3 trillion or so to the deficit over the next decade.  And, frankly, if you believe Goldman Sachs today, a return to trend rates of growth seems..unlikely, as they’ve lowered 2Q GDP growth to 1.5% from 2.5% and 3Q to 2.5% from 3.25%.  They also forecast unemployment at end of 2012 to be 8.75%.

So, the best case scenario is that we’ll add $9 trillion to the deficit over the next decade. A return to historical growth and interest rates–even if we assume the $4 trillion of budget cuts will actually happen–means a 10-year deficit of $16 trillion. Essentially, we will more than double the National Debt, pushing the debt to GDP ratio to about 160% by 2021.

And that’s the good news.

The bad news is that, in the current debate over the debt ceiling, everyone involved seems determined to play chicken with a default–even if only a selective default–of US treasury obligations.

Tim Pawlenty even suggested that a technical default might be exactly what Washington needs to send a wake-up call to the politicians about how serious the situation is. Others, like Michelle Bachmann, and a not inconsequential number of Tea Party caucus members are steadfastly against raising the debt ceiling for any reason at all.

This is insanity.

Any sort of default, even a selective default that would suspend interest payments only to securities held by the government, while paying all private bondholders in full, will have completely unpredictable results. The least predictable result, however, would be business as usual. A technical default–i.e., delaying interest payments for a few days–or selective default, or any other kind of default is…well…a default. It is a failure to make interest payments.

The most obvious possible result of any sort of default will be to eliminate the US Treasury’s AAA rating, and push interest rates up sharply. If we’re lucky, we’d be talking about a yield of 9%-10%…and an additional $5 trillion added to the deficit (running total in 2021: $21 trillion added to the national debt).

And, again, that’s a best case scenario. Because it assumes that everyone will be willing to hold their T-Notes through all of this.  If any major overseas institution or government–say, China–decides to unload their holdings, it could be the start of a flight from treasuries that will destroy the US Dollar in the FOREX, vastly increase the price of imported goods, like, say, oil, and spark uncontrollable hyperinflation in the US. The life savings of every person and institution would be wiped out.

Naturally, yields on interest-bearing instruments would then pull back on the stick and climb for the skies. Not that it’d matter much at that point, since the currency would merely be ornately engraved pieces of durable paper.  Suitable for burning in the Franklin Stoves with which we will be heating our homes, in the absence of oil.

Flirting with default is extraordinarily reckless. I don’t even have the words to begin to describe how badly any sort of default might go.

The thing is, we don’t know–we can’t know–what the results of a technical or selective default might be.  It might be the judgement of worldwide investors that there are no better alternatives to US-denominated securities, so they’ll just have to ride out a technical default, and accept their interest payments coming a few days late. It might be their judgement that unloading their US-denominated securities and losing a little money is better than the risk of losing everything through a currency collapse. It might be a lot of things, and we have no way of knowing which of those things might come to pass.

As Tim Pawlenty says, a default might be a wake up call.  From an exploding phone filled with napalm and plutonium.

Whatever political points might be at stake, is it worth this level of risk?

The safe path here is a simple $500 billion debt limit increase. That’ll give us 6 months to figure things out, and try to discover some way to get our fiscal picture under control, and avoid a default. Government spending is out of control, but a default is really not the best way to impose fiscal discipline.

~

Dale Franks
Twitter: @DaleFranks

How do you bring a run-away government under control?

Rick Perry (Governor of Texas) and Nikki Haley (Governor of South Carolina) have a piece in the Washington Post in which they offer a solution to that problem we’re now experiencing:

We oppose an increase in the federal debt limit unless three common-sense conditions are met: substantial cuts in spending; enforceable spending caps to put the country on a path to a balanced budget; and congressional passage of a balanced-budget amendment to the U.S. Constitution. That amendment should include a requirement for a congressional supermajority to approve any increases in taxes.

We can quibble about the particulars but in general I’m in agreement.  That said, I have little hope that a balanced budget amendment will ever pass or that a congressional supermajority will become a requirement for tax increases.  But the basic premise – cuts in spending, enforceable spending caps and difficulty in passing new taxes would indeed help begin to bring the national government under some semblance of control.

Here’s the crux of the problem with the Federal government:

Washington’s ability to continuously vote itself more fiscal breathing room may help Congress — at least in the short term — avoid making the kinds of tough decisions made by states, businesses and families. But ignoring economic realities will lead to even more painful choices down the road and increases the potential for a financial collapse that could permanently cost America its role as the world’s leading economic power.

Unfortunately, the system in Washington makes it easier for elected officials to bury their heads in the sand, avoid responsibility and make the easiest choice of all: borrow more, plunge our nation deeper into debt and allow this generation to punt the tough decisions to our children and grandchildren.

Such moves may be good politics, since they mean officials don’t have to say no to anyone, but as a matter of policy they are indefensible.

That “reality” and the trump of politics over statesmanship are the reason we’re in this deep hole and most of us don’t expect to see anything serious about correcting it come out of Washington.  After all, those that have to alter the reality inside the beltway are the same ones who have put us in this position in the first place (and I mean as a group going back decades).  The proverbial fox guarding the hen house situation.  That’s why it is difficult not to be cynical and skeptical about “solutions” – even this political show we see going on over the debt ceiling.

Perry and Haley are touting a pledge they’ve signed called the “Cap, Cut and Balance” pledge:

The only way to get the federal government to end this indefensible practice is to draw a line and finally hold Washington accountable. The pledge we’ve signed represents an important step in this process.

It calls for the kinds of budget cuts Washington needs now and for a hard cap on all future spending. And it finally moves us to a mandatory balanced budget that will end the era of national debt, raging deficits and failed “stimulus” programs that have negatively affected so many aspects of American life.

Americans must continue to stand up for the principles that served as the foundation for our nation’s unparalleled successes. The principles of a limited federal government and responsible fiscal leadership have sustained us during tough times, and they can lead us out of this period of sluggish economic growth.

Yeah, pledges are nice and sure it makes us feel better and focuses us on the problem.  However, we’ve heard political pledges from politicians for years which have essentially promised to fix the problem in Washington.   And here we are.

That’s not to say that Perry and Haley aren’t right.  They are.   It’s to say we’ve heard all this before, we’ve seen pledges come and go, and we’ve seen solutions offered that were perfectly reasonable that have never seen the light of legislative day.

We seem to have a class of politicians who seem to find it difficult to deal in the reality the rest of the country deals with every day – spending within our means, meeting budgets, and being responsible.  I’d like to say I knew how to fix that, but after half a century of watching these nincompoops at work and how they’re seemingly rewarded for doing exactly what we’re now lamenting, I’m not sure the system can be fixed.

My cynical take on the day.

~McQ

Twitter: @McQandO

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Obama and the debt ceiling

I was gobsmacked by this quote in a POLITICO story about Obama’s walkout from a debt ceiling negotiation:

On exiting the room, Obama said that “this confirms the totality of what the American people already believe” about Washington, according to a Democratic official familiar with the negotiations, and that officials are “too focused on positioning and political posturing” to make difficult choices.

That line could be the summary of the Obama presidency to this point.  Think Afghanistan for instance.  Remember this:

The withdrawal has created deep divisions in Washington. The defence secretary, Robert Gates, argued for a modest reduction – at one point as low as 2,000 – citing the advice of US commanders in Afghanistan that they need to protect gains made during the winter against the Taliban.

But senior White House staff, conscious that the president has an election to fight next year, argued in favour of a reduction that would send a signal to the US public that an end to the war is in sight.

The “difficult choice” would have been to keep the troops in place and reinforce the success they’ve been having.  Instead, we got the “positioning and political posturing” decision made to hopefully enhance Obama’s re-election chances.

Certainly, there is political posturing going on all over the place by both parties, but when the GOP actually sticks to its guns (no new tax increases) while playing hardball, how does that “confirms the totality of what the American people already believe?”  I don’t think he understands which side of that statement he’s actually on.

Ed Morrissey makes another point:

One of the easiest ways to identify an amateurish negotiator is the issuance of obviously empty threats.  Yesterday, Barack Obama issued one of the emptiest political threat in modern American history when he stomped out of the debt-ceiling negotiations yesterday in a fit of pique:

“Eric, don’t call my bluff. I’m going to the American people with this.”

Really?  Then Obama will be in for a very rude awakening when he finally meets the American people:

Gallup: Americans paying attention oppose debt-ceiling increase almost 2-1

CBS poll shows 69% opposed to a debt-ceiling increase

Poll: Majority support a balanced budget amendment

Poll shows more people concerned about national debt than national default

Poll shows Americans getting more pessimistic on economy, want spending cuts

Americans oppose raising debt ceiling by more than 2-1 in Gallup survey

CBS poll shows Americans oppose debt-ceiling hike 2-1

Hill poll shows 62% opposed to raising the debt ceiling

The people have been taking it to Barack Obama since the midterm elections.  Maybe he should do less stomping and a lot more listening.

But listening isn’t one of his forte’s.  Instead he likes to play games like this.  I’m sure some sycophant will soon call what he did “gutsy”.  Bottom line, the GOP has to hope he actually follows thorough on his threat because he is obviously not at all tuned into the American people who, as the links point out, have been stating their opinion for quite some time.

Obviously Obama thinks he can pull his campaign trail wool over the American public’s eyes one more time.  But my reading is that public is in no mood for his oratorical mendacity.  The swooning crowds of yore are no more.   For 2 plus years Americans have been able to watch and assess this guy based on his actions, not his words.  And if the “generic Republican” poll is any indication, they’re wanting change as badly now as they did when Obama was swept into office.

So – hang tough GOP, the polls say the American people are with you.  Don’t fall for the political theater and cave to non-existent pressure.  He’s the one the with problem.  Make sure you remember that.

~McQ

Twitter: @McQandO

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What a difference a percentage point makes

Especially when you’re talking about GDP growth:

The "new normal" is a term coined by the brain trust at the giant bond fund PIMCO. Anthony Crescenzi, a PIMCO vice president, strategist and portfolio manager, is part of that brain trust.

"The difference between 2 percent growth and 3 percent growth is of major importance and has major implications for the entire economy, for financial markets, for the budget," he says. And the heart of the problem is job creation.

Crescenzi and his colleagues argue that the U.S. economy could actually grow 2 percent a year without adding any new jobs. That’s because the productivity of current workers is rising at about 2 percent a year. "In other words a company can produce 2 percent more goods and/or services a year even if it doesn’t increase the number of people it employs," he says.

Smaller Incomes Mark Zandi, chief economist at Moody’s Analytics, thinks some new jobs would be added in an economy growing 2 percent a year, but far fewer than one growing 3 percent. "In a 3 percent world we’d create roughly 1.6 million jobs a year," he says. But he says that in a 2 percent world, job creation would be less than half — around 700,000 jobs.

Meanwhile, in China, growth hit 9.5%.  So what is China doing, policy wise, that the US isn’t?  Well, for one thing it is encouraging businesses and has established a positive business climate.  Additionally, it isn’t borrowing money to pump into some black hole it calls “stimulus” at a rate faster than we’ve seen in recent history. Etc.

It’s pretty bad when you have to look to China to point out what the US should be doing.   As Henry Kissinger recently said, the Chinese used to think we had the financial side of things pretty much figured out.   Then this mess and resultant stupidity in reaction to it.   The one thing we should have had the inside track on, we didn’t, because we chose to recreate the failed policies of the Hoover/FDR era without a world war to finally pull us out of the mess (or at least I hope that’s the case).

Is this the “new normal” as Crescenzi claims?   PIMCO, btw, is the world’s largest bond fund (almost 2 trillion).  PIMCO also recently announced that it would no longer be buying US debt.

Why?  Because no one is confident the Federal Reserve knows what it is doing:

Some Fed officials at the June meeting also said additional monetary stimulus would be appropriate “if economic growth remained too slow to make satisfactory progress toward reducing the unemployment rate and if inflation returned to relatively low levels after the effects of recent transitory shocks dissipated,” according to the minutes.

Really? 

So they are considering a “QE3”?  Note the change from “last August” to now. 

Last August, when Bernanke signaled in a speech in Jackson Hole, Wyoming, that the Fed would embark on a second round of Treasury bond purchases, employers were cutting jobs, pushing up the unemployment rate to 9.6 percent. The weakness in the economy prompted Bernanke to focus on the possibility of deflation, or a broad-based drop in prices and asset values including homes and stocks.

The economy is in better shape now than in August, though hiring remains “frustratingly slow,” Bernanke said at a June 22 news conference. Employers added 18,000 jobs to their payrolls last month, the fewest in nine months, the government reported last week.

The Fed’s $600 billion Treasury bond-buying program, completed in June, was designed to spur economic growth, employment and consumer spending by lifting stock prices and reducing borrowing costs.

Is the economy in “better shape now than in August”?  I say ‘no’. And so do most of the economic indicators.  Dr. Robert Barro, Paul M Warburg Professor of Economics at Harvard University makes it clear where the current policy is leading:

Turning to quantitative easing, he warned that the US and UK are storing up inflation and that the Bank of England may be too complacent. Although there is no threat to inflation now, he said: "You have to have an exit strategy. Ben Bernanke [chairman of the US Federal Reserve] and [Bank Governor] Mervyn King are aware of this, but I think they are a little over confident about how they can accomplish it. Because you want to have this exit strategy without having a lot of inflation.

"That’s when the inflation would occur. If there’s a recovery and there’s all this liquidity and somehow the central bank has to reverse it."

That’s precisely where this is all headed – somehow at, at some point, the Fed has to wring out all this money it pumped into the economy.  And that stored up inflation is likely to explode during that process – a real economy killer.  Barro is saying he has little confidence in the Fed, deeming them “over confident” in their ability to do that while avoiding letting the inflation dragon out of the cage.

Meanwhile, in Europe …

Yeah, it’s a mess.  And given the propensity of our policy makers to recreate the policies of the Great Depression, I don’t see it getting better any time soon.  So yes, for at least the foreseeable future, the “new normal” may be 9.2% unemployment.  Because there is still no reason or incentive for US businesses to take the chance of expanding and hiring in such an uncertain economic atmosphere.

Until they are much more confident in the policies of this administration and the Federal Reserve, few if any are going to change the status quo.

~McQ

Twitter: @McQandO

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Obama claims that stimulus worked when in fact it simply delayed the inevitable with borrowed money

Seriously out of touch:

Three days after the U.S. Department of Labor reported that the national unemployment rate had ticked up from 9.1 percent in May to 9.2 percent in June, President Barack Obama said that the loss of jobs in the public sector is “evidence” that his $830-billion economic stimulus legislation worked.

“Now, without relitigating the past, I’m absolutely convinced, and the vast majority of economists are convinced, that the steps we took in the Recovery Act saved millions of people their jobs or created a whole bunch of jobs,” Obama said at his Monday press conference.

Except he can’t point to anything to prove his point.  What we do know, however, is much of that money went to pay down the debt of the various states, which is hardly likely to create jobs.  We also know it was spent on things like “Operation Fast and Furious” which certainly didn’t lead to any jobs – at least here in the US.

So this is the only place he has to point:

“And part of the evidence of that is as you see what happens with the Recovery Act phasing out,” he said. “When I came into office and budgets were hemorrhaging at the state level, part of the Recovery Act was giving states help so they wouldn’t have to lay off teachers, police officers, firefighters. As we’ve seen that federal support for states diminish, you’ve seen the biggest job losses in the public sector–teachers, police officers, firefighters losing their jobs.”

Or, ”we didn’t save anything, we just delayed, for a short time, the inevitable.”

That makes it hard to claim that the stimulus “worked”.  Public sector jobs don’t contribute to the economy – they’re a drain.  Oh sure we’ve decided they’re a necessary expense, but they don’t contribute to the economy the way a private sector employee does.  What has been said for years is we can’t afford the overall expense of government – that it must cut back to “necessary” and drop the “unnecessary”.   There was the easy way to do it (when the economy was good) and had they done so state governments would have been in better shape when the downturn hit.  But they didn’t.  Government has a tendency to expand when revenues increase, not contract.  So when revenues contract, they are unable to fund the excess.

So the stimulus didn’t create or save jobs, it funded the excess jobs states and localities should have shed long ago as “unnecessary” and, more importantly, “unaffordable.”

Look, this unemployment problem is the beast that will devour Obama and he knows it.  But if this is the best he can come up with, he’s in for a very long and bumpy re-election campaign, at least when it comes to this subject.

~McQ

Twitter: @McQandO

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Temporary worker hiring outlook dismal

One of the things economists watch to try to gauge the job market is how the temporary worker market is doing.   Many times a rise in temp workers signals businesses are gearing up for more permanent hiring as the economy gains steam.  The opposite is many times also true.   And, unfortunately, it appears that this particular indicator isn’t giving us the warm fuzzy feeling  we hoped it would:

Last month’s fall in the number of temporary workers could herald continued weakness in the job market.

The total number of temporary employees placed by staffing agencies dipped by 12,000 last month and is down 19,000 the past three months, the Bureau of Labor Statistics reported Friday.

Now perhaps 3 months can’t be considered a “trend”, but it is pretty darn close.  And it parallels the news we’ve been getting about unemployment and the economy in general.

Temporary workers, however, could be the most telling signal. The number of contingent workers started growing in fall 2009, about six months before the broader job market began to emerge from the recession. From September 2009 to March, employers added nearly 500,000 temporary workers.

Roy Krause, CEO of SFN Group, a top staffing agency, says temporary placements for white-collar jobs in accounting, computers and legal remain strong. But those for lower-skilled light industrial, clerical and certain call-center jobs — which accounted for most of last year’s growth — have slowed. "They tend to be more sensitive to economic conditions," he says.

An example:

Chemical maker Arkema of Philadelphia employed about 150 temporary workers earlier this year. But it trimmed that total by about 50 in April and May as the weak economy prompted it to cut its 2011 forecast, Vice President Chris Giangrasso says. Arkema, he says, will likely not add this year to its permanent staff of about 2,500 in North America.

Key point – “weak economy”.  He had enough growth last year to warrant hiring temp workers but not full time staff.   Now he doesn’t even have enough business to warrant 2/3rds of the temps he hired and had to let them go.

That weakness in the economy continues to linger because, as we’ve noted any number of times, of the unsettled business climate.  And that’s something government could do to help the situation – back off regulation, taxes and interference (*cough* NLRB/Boeing*cough*) and stay out of the way.   It seems, though, that doing so is just not in this administration’s genes.

And so the negative indicators continue to pile up while the President of the United States and a complicit media attempt to make bad guys out of the GOP as they hold the line against economy crippling tax increases.

Go figure.

~McQ

Twitter: @McQandO

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NY Times still clueless about economic woes

Cluelessness seems to be a fairly rampant disease among those who seem unable to peer objectively at reality and analyze it.  They prefer to pretend they know what they’re talking about and unhelpfully prescribe exactly the wrong antidote every single time (in this case, more of what we’ve watched fail for two plus years).  And, as it turns out, the New York Times editorial board is peerless among that group:

It was not surprising to hear the Republican presidential candidates repeat their tiresome claim that excessive government spending and borrowing were behind Friday’s terrible unemployment report. It was depressing to hear President Obama sound as if he agreed with them.

And the NYT’s claim as to why that’s not the case?

There has never been any evidence that the federal debt is primarily responsible for the persistent joblessness that began with the 2008 recession. The numbers have remained high because of weak consumer demand and stagnant wage growth, along with an imbalance between jobs and job skills.

Who has ever argued that “federal debt is primarily responsible for the persistent joblessness?”  Certainly there are other factors.  However, there’s no question that excessive government spending – i.e. borrowing to spend – has had a hand in the stagnation we’re now undergoing.  In fact, increased and excessive government spending has had no effect and, given the promises made, could be argued to have had a negative effect. 

The debt is the indicator of the problem – excessive and unaffordable spending.  As we’ve been pointing out for months, revenue isn’t the problem – spending is.   So pointing to this strawman, as the NY Times does, is just more politics from the side who thinks it prudent to penalize those who produce in order to bail out those who spend what they produce (and the reason the Democrats insist on calling the present income tax levels “Bush tax cuts”).  What doesn’t seem to penetrate the thinking of those who continue to push this line is one of the reasons we’ve had weak consumer demand and stagnant wage growth is the unsettled business and regulatory atmosphere this administration has created in its 2 plus years.  That, of course is pushed aside by the NYT in favor of this argument:

The president may have a nebulous approach to unemployment, but he is hardly indifferent to it. His re-election hinges on reducing it. It is hard to understand, though, why Mr. Obama has adopted the language of his opponents in connecting the economy to the debt. To his credit, he talked about the one step that would work — investing money in rebuilding the country. But the debt-ceiling ideas he is now considering would make that investment much less likely by pulling hundreds of billions of dollars out of the economy at precisely the moment when the spending is needed most.

Yeah, there’s absolutely no connection between the “economy” and the “debt” is there?   Of course there is?   And pretending that borrowing money we don’t have to push it out in the economy and calling it an ‘investment’ doesn’t fool most rational folks.  The NYT even points out that the last time the money was thrown out there is it mostly went to service state debt which only delayed the inevitable.  Now, apparently, that will somehow be different in the face of “weak consumer demand”.   Really?   And, of course, the jobs the NYT laments about aren’t private sector jobs but government jobs (state and local) which we all know are the engine of our economy (/sarc).

The types of increases in revenue that government should be encouraging are those that come from private sector jobs.   They provide tax revenue from created wealth.   They don’t require the government to borrow money to “invest” (i.e. borrow money, create jobs and then tax the jobs created with the borrowed money and claim “increased revenue”.  Make sense to you?).

So while I don’t disagree with the Times when it says “his re-election hinges on reducing” unemployment, it appears the Times would opt for the easy and wrong way to do it – borrow more money, pump it into creating make-work jobs just long enough to get Obama past the 2012 election.   Then, who care?   Debt ceiling, increased drag on the economy’s GDP and all that stuff, forgetaboutit.  Well, at least till they get this guy re-elected.  Then, of course, I expect a clarion call by the Times wondering how this could have all be so mismanaged and spinning and twisting it, as they have in this editorial, so it all ends up being the fault of the Republicans.

~McQ

Twitter: @McQandO

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